Should You Buy No Exam Life Insurance

This is a guest post by Jeff Rose who is a certified financial planner and blogs at GoodFinancialCents. If you would like to write an article for Money Q&A, please visit our Guest Posting Guidelines page.

If you have ever considered buying life insurance online, you may have come across advertisements that claim, “Life insurance with no exam”, or “How to get your life insurance fast by avoiding a medical exam”.

We get quite a few people that contact our office inquiring about these life insurance products. If you’ve ever consider going the no exam life insurance route, it’s important you weigh these considerations before you do so.

Who Needs No Exam Life Insurance?

If you are in good health, have no time constraints on when you need the life insurance policy (can wait four to six weeks for underwriting), then buying a traditional term policy makes the most absolute sense. There is no question that the most affordable life insurance is term and any other type you are going to be paying that much more. We will talk about cost here in a bit.

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So, who does no exam life insurance make sense for? Often times, we see people buying no exam life insurance that need it for the following reasons.

1. Secure a Business Loan. It never fails that we have business owners that need life insurance that weren’t aware that this was the case. They are at the final leg of getting their loan approved and then they learn that they need to have life insurance. Going the no exam route will cost more but they should be able to have their policy in about a week’s time.

2. Divorce decree. Often times, a divorce will end where one spouse has to have life insurance on themselves with the soon-to-be former spouse as the beneficiary. Needing to have it done quick, once again, the no exam policy could make sense.

3. High-risk condition. Guaranteed issue life insurance, which is one of the types of no exam policies that you can buy, is often purchased by individuals that cannot secure a traditional term policy. If you have been declined by a traditional carrier, then guaranteed issue life insurance may be your only option.

Types of No Exam Life Insurance Policies

For the most part, there are two main types of no exam life insurance policies. You have guaranteed issue and simplified issue. Guaranteed issue policies are the most expensive of the two. Most guaranteed issue policies are only going to ask you four basic questions. As long as you can answer no to those four questions, you can get approved.

Now, since the underwriting is so simple, that then makes the cost that much more. If you think about it from the life insurance company’s perspective, since they are doing little underwriting or background checks on you, they are going to make you pay for it in the premium.

On top of that, most of these guaranteed issue policies will have what is called a graded death benefit. What that means is that if you buy the policy and something happens to you in that first year, your beneficiaries are only going to get back the premium you paid plus interest. There is usually a two to three year waiting period before your heirs would get the full benefit.

Simplified issue is another form of no exam life insurance. With simplified issue, they are going to ask you more questions upfront about your medical background. They will then compare what you have answered on those questions on what they can find in your medical records, usually referred to as your APS (attending physician statement).

The insurance company just wants to compare what you said in their phone interview to what is in your medical records. As far as everything looks on the up and up, you will get approved rather quickly.

How fast will you get approved? There is one carrier, 1Click Coverage, that will approve you within 24 hours. Fidelity Life is another simplified issue carrier that could have your policy underwritten in 48 hours.

How Does the Cost Compare?

Purchasing no exam life insurance is not cheap, at least compared to traditional term policies. The closest that we have seen is Fidelity Life, where their cheapest policy will have you come in as a preferred rate whereas you could get approved at preferred plus with a traditional big box life insurance company. You can expect to pay approximately a minimum 20% more on your life insurance premium by going the no exam route (sometimes more).

When we compared a $250,000 policy for a 30-year-old male of a no exam policy versus a cheap term life policy, it was almost double. The cheap term policy was $18.92 a month versus $34.76 a month for the non-med policy.

As you can see, the no exam insurance route is much, much more expensive. If you are in need of life insurance fast, then you can justify the cost. If not, go with a traditional term policy. If you’re worried about having coverage immediately, almost all companies will allow you to pay up front a pro-rated portion of your expected premium to ensure that you are covered through the underwriting process. Going with a cheap term life policy will save you big bucks!

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People buying the no exam policies mostly do so because it’s the only way to get a policy. The adverse selection is extremely high as mostly very sick people are in the pool

Another option that may be available are group programs at work. Many are guaranteed issue when participation requirements are met. If you leave your employer you have the option of converting to an individual policy.